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Nikkei Markets

Petronas Chemicals quarterly profit more-than-halves on-year

Cheaper prices weigh, analysts expect rebound in 4Q as utilization rate picks up

Petronas' net profit for the first half of 2019 rose 9% to $6.9 billion.

KUALA LUMPUR (Nikkei Markets) -- Cheaper product prices and weaker demand dragged Malaysia's Petronas Chemicals Group's quarterly net profit down again, sending the company's shares sharply lower in Kuala Lumpur trading on Wednesday.

Shares of Petronas Chemicals fell as much as 6% after the company said its net profit for the third quarter more-than-halved from a year earlier. Still, analysts said earnings will likely rebound in the coming quarter as plant activity returns to normal levels in absence of major shutdowns.

"We expect plant utilization rate to recover in the fourth quarter to historical rate of 90% and above as there is no plant turnaround in the future," said MIDF Amanah Investment Bank Analyst Noor Athila Mohd Razali. "Demand for products remain strong, but the key thing to watch is the selling price."

Prices of products made by Petronas Chemicals have strong correlation to crude oil prices that have risen since September following attacks on Saudi Arabia's major oil infrastructure.

The U.S. Energy Information Administration forecasts Brent spot prices, the global benchmark for crude oil, will average $59 a barrel in the fourth quarter of 2019. Brent was last traded at $61 a barrel.

Net profit for the quarter ended Sep. 30 stood at 553 million ringgit ($133.16 million), down from 1.21 billion ringgit a year-ago, Petronas Chemicals said in an exchange filing. Quarterly revenue dropped 24% year-on-year to 3.67 billion ringgit compared with 4.83 billion ringgit.

Overall plant utilization rate rose to 81% from 79% although profits from its mainstay olefins and derivatives segment were hit by the so-called statutory plant turnarounds that weighed on sales and lifted maintenance costs.

In April, Petronas Chemicals said it has scheduled six statutory plant turnarounds this year but still aimed to maintain 92% utilization rate for the year. The so-called statutory turnaround activity typically involves shutting down some of its refineries' operations for maintenance or upgrades.

Plant utilization rate is expected to rebound in the final quarter of the year in the absence of substantive maintenance activities, said AmInvestment Bank's Analyst Alex Goh. That should allow the company to achieve its targeted utilization levels of above 90%, he added.

Petronas Chemicals expects product prices for olefins-and-derivatives segment to stabilize in the coming quarter, the company said. "This is in view of supply limitation following planned regional turnarounds."

Petronas Chemicals, which also makes fertilizer and methanol, said that product prices in the segment are expected stabilize due to limited supply amid soft demand from end-products.

Shares of Petronas Chemicals ended 5.4% lower at 7.38 ringgit apiece on Wednesday, while the benchmark FTSE Bursa Malaysia KLCI closed 0.8% down.

-- Gho Chee Yuan

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